With robust collections, record tax-GDP ratio likely in FY23: Revenue Secretary Tarun Bajaj

Encouraged by the robust tax collections this fiscal, Revenue Secretary Tarun Bajaj on Friday said that India’s tax-to-GDP ratio is likely to climb to the highest level ever this year, after being subdued in recent years due to tax rate reduction and also the pandemic effect.

It may be recalled that Gross-tax-to-GDP was 11 per cent in FY19 and it fell to 9.9 per cent in FY 20 and marginally improved to 10.2 per cent in FY21 (partly due to decline in GDP).

Gross tax collections surpass budget estimate

In budget 2022, which was presented by Finance Minister Nirmala Sitharaman on February 1 this year, the gross tax receipts budgeted at the revised stage was higher than the budget estimate by about ₹ 3 lakh crore. This is probably the first time when gross tax collections at the revised estimate stage had surpassed the budget estimate under all heads (corporate tax, personal taxes, customs duty, excise duty and GST).

“Our tax-to-GDP ratio went below 10 per cent in the year we brought down tax rates. It has now started going up. I won’t be surprised if tax -GDP ratio this fiscal is one of the highest or highest ever for direct taxes and indirect taxes taken together. It is good sign that government has stabilised in tax policy and corporate sector is also adjusting to the less exemption regime and we are moving together”, Bajaj said at a post budget interaction organised by industry body Assocham.

‘Large corporates doing well’

Bajaj highlighted that the latest tax buoyancy is a clear pointer that corporates —especially large ones— are doing well. “Unless corporate sector does well, I don’t think we can move the wheels of the economy. While revenues are good, we are happy that large corporates are doing well ( of course MSMEs are not doing that well)”, he said.

Bajaj highlighted that in the last budget as well as current budget, the government’s efforts have been ensuring stability and predictability of tax regime. “Government has not tried to tinker too much with tax regime. Some changes and ease to taxpayers (like reducing litigation, allowing updated return and faceless assessment etc ) have been provided.

He also noted that government had an option to curtail spending and not increase capital expenditure so that it could have shown consolidation. However it opted against it so as to push economic growth and has given big push to capital expenditure. 

“Our Capital expenditure as a percentage of GDP had been languishing. We have now been able to more than double capex in the last three years. Once GDP is pushed through this mechanism, lot of things like job, growth will fall in place. Private sector will look to replace public investments and take the economy forward. It is only in that context that the 15 per cent concessional tax rate for new manufacturing units was extended by a year in this year’s budget”, Bajaj said.

Asked if the latest extension by one year of the 15 per cent concessional tax rate to new manufacturing units will be a permanent feature or corporates will have to return to 22 per cent after year 2024, Bajaj replied in the negative.

“I think the message is very clear. We would like you to set up your manufacturing units fast, The time limit has been extended by one year. There will be a sunset clause and after that you will have to move to 22 per cent, which is what the corporate tax rate is. This has been given as special dispensation for new manufacturing units to come up and for you to set up units sooner than later”, Bajaj said.

On new corporate tax regime, Bajaj said that corporates are settling down and moving towards the lower rate of 22 per cent. “ My own assessment is, as companies exhaust their exemptions, they would start moving to the new tax regime because there is a big difference between 30 per cent and 22 per cent that corporates can benefit from”, he added.

On Special economic zones, Bajaj noted that government had not introduced risk management. “We don’t want to have physical presence in these SEZ areas. We want to interact with you through technology and risk management systems. In next six months, we will try and do that”, he said.

‘New experiment’

Central Board of Direct Taxes ( CBDT) Chairman J B Mohapatra said that the budget has several innovative steps to cut down litigation. A new Section 156A in Finance Bill allows an assessing officer to give effect to an order of adjudicating authority under IBC and consequential orders of NCLT and SC. “This is the first time an income tax officer would be giving effect to an order of any authority outside income tax. 156A is statutorily linking income tax authority with judicial authority somewhere else. This is an experiment that will not only clean the gross demand position of the department but would also help taxpayer in cleaning up demand in books of the department”, Mohapatra added.

A separate provision has been introduced in the Finance Bill to ensure that repetitive appeals are eliminated and thereby prevent litigations from getting generated at the appellate forum.

The budget has also opened the window for a restructured entity to file a revised return within six months of the order of an authority, Mohapatra added.

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